Why every investor owns Tata Motors--and should rethink it

For many investors, Tata Motors has become the go-to stock in the automobile space. It's often sold as a story of turnaround and transformation. Post-Covid, the stock saw a meteoric rise, turning into one of the most widely held stocks in India with more than 67 lakh shareholders, surpassing even retail darlings like Yes Bank and Vodafone Idea in terms of shareholder count.

The pitch is neatly packaged: it's India’s EV leader, Jaguar Land Rover (JLR) is on the mend, and the stock trades at a significant discount to peers. But beneath the surface, this narrative demands a closer look. When the engine sounds too smooth, it's often worth lifting the hood.

The EV story: More sizzle than substance

A key selling point of Tata Motors is its position as India’s leading EV manufacturer. But investors must ask: how much does this leadership really contribute?

As of now, electric vehicles form a very small fraction of the company’s total sales, both in volume and value (less than 2 per cent of its FY25 revenue). For a company the size of Tata Motors, the EV segment is too small to materially move the needle. It’s akin to attaching a sleek, new spoiler to a 20-year-old sedan—visually appealing, but it doesn't improve the car’s performance.

The company’s market share in the EV segment is also beginning to erode. New players, better technology, and wider product choices are entering the scene. Tata Motors may have had a first-mover advantage, but that’s no longer sufficient. In the automobile world, early entry means little if the pace of innovation isn't sustained. This is especially true in EVs, where battery tech, software integration, and infrastructure play a bigger role than legacy branding.

Interestingly, while EV share has plateaued, the share of CNG vehicles in Tata's sales is rising. While this makes sense in the Indian context of rising fuel costs, it also shows that mass-market buyers are opting for cheaper, alternative fuel options over pricier EVs, further casting doubt on the EV growth narrative.

Then there’s JLR’s electrification plan, which is also part of the broader EV story. But globally, every automotive player—Ford, Mercedes, BMW, Hyundai—is shifting to EVs. There’s nothing unique in Tata Motors’ ambition to electrify JLR. Without a technological or branding edge, this part of the story is simply table stakes, not a competitive advantage.

JLR: A history of promise and pain

Tata Motors acquired JLR in 2008 to much fanfare. The move was seen as bold and visionary—an Indian company owning iconic British brands. But the subsequent journey has been rough.

If one examines the sales volume of JLR over the past decade, it has barely moved. Tata Motors has struggled to convert the brand’s legacy into consistent growth. Even today, most of the optimism around JLR comes from hopes of a cyclical margin improvement, not from fundamental shifts in consumer demand or product leadership.

Yes, margins are improving. But they are simply converging with those of global peers. In a market that’s increasingly crowded and sensitive to economic cycles, JLR’s ability to maintain those margins is far from guaranteed.

The valuation mirage

One of the most frequently cited reasons to buy Tata Motors is its so-called attractive valuation. With a price-to-earnings (P/E) ratio hovering around 10, it appears cheap next to Indian peers like Maruti Suzuki or Mahindra & Mahindra, who trade above 20.

But this comparison is flawed.

Maruti and M&M operate primarily in India—a market that is still in the growth phase of its automobile cycle, supported by rising income levels, urbanisation, and consumer credit. Tata Motors, in contrast, derives the majority of its revenue from global markets, particularly through JLR (71 per cent of FY25 revenue). These markets—Western Europe, the UK, and parts of North America—are already saturated and face structural challenges like regulatory tightening, EV transition costs, and economic stagnation. Remember the outcry during Hyundai India’s IPO? It was priced at a P/E of 20–25, while its global parent traded at just 5.

When Tata Motors is compared to global peers like Ford, GM, BMW, or Mercedes, its valuation doesn’t look particularly cheap. Most global automakers trade at a P/E of 7 to 12, especially given the industry’s capital intensity and cyclicality. Tata Motors falls squarely within this band. So the discount is a myth.

Moreover, this is not an under-the-radar stock. It is one of the most actively tracked and widely owned counters in the Indian market, both by institutions and retail investors. Price discovery is efficient. If there was a deep value play here, it would likely have been priced in long ago.

The India story? Look again

Many argue that Tata Motors’ growing presence in the Indian passenger vehicle market is a compelling reason to invest. To be fair, its SUV lineup—Punch, Nexon, Harrier—has been well-received.

But there’s more to the story.

The growth in sales has been fuelled largely by dealership expansion. While that creates a temporary bump in volumes, a worrying trend has emerged—sales per dealership have fallen significantly. This means Tata is selling more cars, but with far less efficiency. In contrast, players like Maruti and M&M have seen either stable or improving dealer productivity.

It’s like increasing the number of petrol pumps but having fewer cars drive in. Sure, there’s more coverage, but it doesn’t always lead to better business.

This decline in per-dealer productivity suggests weaker brand pull and limited customer stickiness. It also hints at deeper operational inefficiencies that could hurt profitability in the long run.

Time to ask sharper questions

At a glance, Tata Motors offers many of the right ingredients for a turnaround story—EV excitement, a global luxury brand, and a “cheap” valuation. But when one digs deeper, much of the narrative appears either overstated or misunderstood.

• The EV story is more about market optics than material impact.
• JLR, despite all the marketing, remains a cyclical luxury brand in a mature market.
• Valuations are context-dependent, and Tata Motors is not cheap relative to its true peers.
• Its growing domestic presence is marred by falling dealer-level productivity.
• And perhaps most importantly, it’s already widely owned, heavily analysed, and often in the news.

Yes, the future may surprise. Some of Tata Motors' new variants might see a spike in sales, and its product pipeline could deliver results. But the same holds true for any automobile player. That hope, in itself, doesn’t offer a lasting edge—nor does it justify paying up for a stock that’s already in the spotlight and priced accordingly.

For long-term investors, the choice is clear: Don’t get carried away by the sales pitch. Look under the hood, and ask—what’s really driving this engine?

Also read: Bharti Airtel's dream run may be behind it

This article was originally published on June 07, 2025.